Investing Smart: Top Liquid Stocks to Consider for Your Portfolio

A portfolio filled with liquid stocks can offer investors rewarding returns. Liquidity is a measure of a company’s ability to pay off short-term debts. Because of the potential for high returns, stocks with high liquidity are always sought after.

Investors might want to look at stocks like American Superconductor Corporation (AMSC), Frontdoor, Inc. (FTDR), Sezzle Inc. (SEZL), and Vimeo, Inc. (VMEO) to enhance their returns.

However, caution is essential when investing in highly liquid stocks, as they might also suggest that a company is not using its assets effectively.

Besides having cash available, it is important for investors to evaluate how companies deploy their capital before buying their stocks. A financially healthy company with favorable liquidity can be a strong portfolio choice.

How to Identify Liquid Stocks

Current Ratio: This ratio compares current assets to current liabilities, indicating a company’s ability to meet both short- and long-term debts. If the current ratio is below 1, it means liabilities exceed assets, which is a red flag. A ratio between 1 and 3 is considered ideal.

Quick Ratio: Also known as the “acid-test ratio,” this metric assesses a company’s ability to pay short-term debts without selling inventory. A quick ratio above 1 is generally favorable, similar to the current ratio.

Cash Ratio: The most conservative of the three, this ratio focuses on liquid assets such as cash and equivalents. It measures a company’s ability to cover current liabilities with the most liquid assets. While a cash ratio above 1 is typically good, an excessively high ratio might suggest poor cash management.

A desirable ratio is always above 1, but it doesn’t always indicate overall financial health.

Criteria for Selecting Liquid Stocks

To find the best stocks, we included asset utilization in our criteria because it reflects a company’s efficiency. This ratio is the total sales over the past year compared to the average total assets over the last four quarters. Higher asset utilization than the industry average suggests better efficiency.

We also included our proprietary Growth Style Score to ensure selected stocks not only are liquid and efficient but also have solid growth prospects.

Current Ratio, Quick Ratio, and Cash Ratio between 1 and 3: Liquidity ratios over 1 are preferable, yet exceedingly high rates may indicate inefficiency.

Asset utilization higher than the industry average: This shows a company is operating efficiently.

Zacks Rank equal to #1: Only stocks rated as Strong Buy can qualify. You can find the complete list of today’s Zacks #1 Rank stocks here.

Growth Score of A or B: Historical data shows that stocks with these scores outperform others when combined with a Zacks Rank #1 or 2 (Buy).

Following these criteria helped narrow down over 7,700 stocks to just five.

Here are four of the five stocks that made the cut:

American Superconductor Corporation (AMSC) specializes in power resiliency solutions. It offers products focused on improving the efficiency and reliability of electricity throughout its lifecycle. In its latest quarter, AMSC reported revenues of $54.5 million, a 60.3% increase year-over-year, thanks to higher shipments and a $200 million backlog of orders.

The company anticipates third-quarter revenues between $55 million and $60 million. AMSC’s fiscal 2024 earnings estimate is set at 50 cents per share, marking a 61.3% increase in the past month. Additionally, it boasts a Growth Score of A and an impressive trailing four-quarter earnings surprise of 328.2% on average.

Frontdoor, Inc. (FTDR) manages home service brands including American Home Shield and offers customizable plans to maintain home systems. Last quarter, FTDR’s revenues reached $540 million, a 3% rise year-over-year. The company also expanded its gross margin to 57%. Recent share buybacks further strengthen investor confidence.

The earnings estimate for 2024 stands at $3.14 per share, reflecting a 12.5% increase in the past month. FTDR earned a Growth Score of B and a trailing four-quarter earnings surprise of 269% on average.

Sezzle Inc. (SEZL) operates a digital payment platform offering interest-free installment payments mainly in the U.S. and Canada. The last quarter saw revenues increase by 71.3% year-over-year, fueled by a growing subscriber base, which now includes 529,000 active users.

Management has raised its revenue outlook for 2024, expecting growth of 55%, an increase from earlier estimates of 35-40%. The earnings per share forecast has also been adjusted upward to $12.05 from $9.25.